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August 27, 2008

Value-Based Positioning (vs) Cost-Based Positioning

No matter which industry we refer to, the way the positioning of products happen is predominantly based on the cost factor. The world has seen a great progress and the economy has had its share of the cake while corporations and companies put their bets on cost-based selling.

With the growing economies of countries across the globe and the growing world market, the consumer mindset (both commercial and domestic) has been looking to get better quality at a lesser cost. While this is good, this has reached a point of saturation. Many countries, especially in the Asian part of the world, has capitalized on this right from the first day. China and India have been the trendsetters in this space. In both, services and the product spaces, the two big developing nations have competed against the world (and between themselves) by proving to be the source of low-cost center/source.

The world market (both commercial and domestic) slowly has reached a point wherein the thought of cost (vs) quality has become a point of concern. While we saw China aggressively (and effectively) battling the 'cost' side of the equation with the lowest of costs, India has concentrated a little more on the 'quality' of products and services too. In the world of automotive, companies like TATA Motor Company, Mahindra & Mahindra, Reva and many others have effectively been able to market their products in the sub-continent while maintaining a high level of export to the Western markets in Europe and the United States. On the other side, there are companies like Geely, Chery, and other domestic automakers in China have high global-aspirations but have been having a tough time including quality-management and overall strategic focus.

The reasons behind the high success rate of Indian OEMs in the international market and the struggle of Chinese OEMs to enter the international market are primarily attributed to their approaches to the market. While the Indian OEMs have focussed more on quality (and started reducing costs without compromising the former), the Chinese OEMs have focussed on cost alone, with quality taking the backseat. There are many other reasons for the Chinese OEMs' low success rate - insufficient quality-management, lack of strategic focus are just some of them.The world today is looking for value as opposed to just low cost. In lay man's terms, value can be understood as -

Best possible outcome from a system that is subjected to a set of constraints defined by the market

The market-defined constraints can be factors like quality, cost, size, etc; the outcome is the product or a service; the system is the manufacturer or supplier or enterprise creating the outcome.